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A jury's award of $2.4 million for infringement of a service mark was upheld Jan. 6 as the U.S. Court of Appeals for the Eighth Circuit rejected the contention that the award of monetary relief required a showing of actual confusion (Masters v. UHS of Delaware, Inc., 8th Cir., No. 09-3543, 1/6/11).
A prior Eighth Circuit case stating the requirement was said to be dicta that the court was not bound to follow. The facts of the instant case--involving a mark associated with the famous Masters and Johnson research team--“illustrate why requiring actual confusion would undermine the equitable nature of the Lanham Act's remedial scheme,” the court said.
But neither was it “a typical trademark case,” the court added, since the parties were not competitors, but rather parties to a licensing agreement. The court determined that the licensee's unjust enrichment through willful infringement contrary to the terms of the license supplied an acceptable basis for the jury's award.
William H. Masters and Virginia E. Johnson, also known as Mary Virginia Masters, pioneered research into the nature of human sexual response in the 1950s and 1960s and subsequently developed treatment methods for sexual dysfunction. Their work was well known under the combination of names, Masters and Johnson, and their books Human Sexual Response and Human Sexual Inadequacy are considered classic texts in the field.
UHS of Delaware Inc. operates psychiatric hospitals and mental health facilities throughout the United States. In 1991, the researchers entered into a license agreement with UHS for use of the “Masters and Johnson” service mark in connection with treatment programs at UHS's facilities.
William Masters died in 2001. The license agreement expired in 2005, after which Mary Masters and UHS parted ways.
In 2006, she filed a lawsuit against UHS for breach of the license agreement, service mark infringement and unfair competition under the Lanham Act, 15 U.S.C. §1125, and unfair competition under Missouri state law.
After a nine-day trial in the U.S. District Court for the Eastern District of Missouri, a jury found in favor of Masters, including a finding that UHS had willfully infringed the service mark. Though the jury awarded Masters $2.4 million of disgorged profits, it answered “None” when asked what damages she had suffered.
Judge Donald J. Stohr entered judgment according to the verdict and denied UHS's post-trial motions.
UHS appealed; Masters appealed Stohr's denial of her motion for prejudgment interest.
Judge Roger L. Wollman affirmed the lower court on all judgments.
The Lanham Act issue arose from Masters's complaint that UHS was using the Masters and Johnson mark in promotional materials for programs unrelated to sexual dysfunction and the methodology associated with the mark.
Wollman readily disposed of UHS's argument that use of the mark in promotional materials did not constitute “use in commerce” under the Lanham Act, inasmuch as the definition of the term in Section 1127 specifically encompasses “when it is used or displayed in the sale or advertising of services.”
“Because UHS misreads relevant provisions of the Lanham Act and ignores evidence the jury found credible, we reject the analytic premises it provides and the conclusions it derives therefrom,” the court said, affirming the judgment on service mark infringement.
In Woodsmith Publishing Co. v. Meredith Corp., 904 F.2d 1244, 15 USPQ2d 1053 (8th Cir. 1990), the Eighth Circuit “unequivocally stated by way of a footnote that actual confusion is required to support an award of damage,” Wollman said. However, he added, “The case did not require us to decide whether actual confusion is a prerequisite for an award of damages, and the statement on that issue is dicta we are not bound to follow.”
This case involves a different kind of comparison, i.e., between the use of the mark the licensing agreement grants and UHS's actual use of the mark. In undertaking this comparison, it is difficult to discern what extrinsic proof of actual confusion--whether in the form of direct testimony or consumer surveys--could possibly contribute to the analysis. There are no objective characteristics by which to compare UHS and Masters because they were not competitors in the marketplace, but parties to a contract for use of a single mark. Accordingly, the degree of similarity is simply not a relevant criterion. Instead, the relevant criterion is the degree to which each party remained faithful to the terms of the license agreement.
Reviewing the evidence presented to the jury, the court reasoned that the jury awarded disgorgement of UHS's profits because of the company's willful infringement. “Disgorgement exists to deter would-be infringers and to safeguard against unjust enrichment,” the court said. “Where the jury disgorges profits to remedy a willful infringement that was likely to cause confusion, to cause mistake, or to deceive as to the relationship between the parties' services, equity does not require adherence to the putative judge-made rule requiring actual confusion.”
Applying that analysis to the instant case, Wollman said, “UHS acted in a way likely to cause confusion, to cause mistake, and to deceive others (including physicians and their patients) as to Masters's approval of [UHS's] unauthorized programs. Such a violation entitles Masters to a disgorgement of UHS's profits, subject to principles of equity.”
UHS also contended that Masters was ineligible to recover profits because the jury answered “None” to the specific interrogatory asking it to fix Masters's damages, but then subsequently awarded $2.4 million.
The court first rejected the notion that a finding of damages is a precondition to a monetary award, again pointing to the unjust enrichment rationale. It also held that the award--40 percent of UHS's acknowledged net profits from the associated treatment programs--was reasonable in light of the evidence and not excessive.
As to UHS's argument that the verdict was internally inconsistent, Wollman highlighted the sequence of decisions the jury made: (1) breach of contract and infringement; (2) the “None” answer; (3) willful infringement; and then (4) the award. “Only after it had indicated that UHS had willfully infringed the mark did the jury calculate what, if any, profits Masters was entitled to receive,” he said, noting that the award therefore was in line with the court's ruling.
Finally, the court rejected Masters's argument for prejudgment interest, deferring to the district court's judgment that the $2.4 million award adequately compensated her.
The court thus affirmed the district court's judgment.
Judge James B. Loken and Senior Judge David R. Hansen joined the opinion.
Bradley Scott Eidson of Senniger Powers, St. Louis, represented Masters. Dean L Franklin of Thompson Coburn, St. Louis, represented UHS.
By Tony Dutra
Opinion at http://pub.bna.com/ptcj/093543Jan6.pdf
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